Icesave declared in default

The internet bank Icesave was today declared in default in the UK, leaving more than 300,000 savers waiting for compensation payouts.

The Financial Services Authority said the default had triggered the Financial Services Compensation Scheme (FSCS) to safeguard retail customers' savings held with the bank.

The FSA said it was working with the Treasury and FSCS on the practical arrangements for paying back customers and that money would be returned "as quickly as possible".

However, more details would not be available until Friday.

The bank closed its doors and prevented savers from withdrawing their money yesterday after its parent company Landsbanki was nationalised by the Icelandic government.

Savers had been told that up to £50,000 of their money was protected under compensation schemes run by the UK and Icelandic governments.

However this morning the government stepped in to guarantee 100% of UK savers' money in the bank after it emerged that the Icelandic government was refusing to meet its obligations to UK savers.

The default declaration triggers action from the FSCS, which will write to savers outlining what they need to do to reclaim their money.

It is not clear how long it will take for pay outs to be paid, but yesterday the FSCS was warning that it could take up to four months.

The chief executive of the FSCS, Loretta Minghella, said: "Following the chancellor's announcement today people can be confident they will be repaid in full.

"We are working closely with all concerned on the practical arrangements to get people their money back as quickly as possible.

"We hope to be in a position to say more about the arrangements by the close of business on Friday."

In a separate move the Treasury has also arranged for more than £3bn of UK savers' money that is held with other Icelandic banks to be transferred to ING Direct UK, a subsidiary of Dutch savings bank ING.

ING is to acquire £2.5bn of deposits and 160,000 customers from Kaupthing Edge, which is thought to represent all of the UK operations of Iceland's biggest bank Kaupthing.

It is also acquiring £538m of savings held by 22,200 people with Heritable Bank, which is also part of Landsbanki and was placed into administration with Ernst & Young yesterday.

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